Stock Trading Brokers and Tutorial

Investing in stocks is what most people think of when it comes to investments, and owning shares in good companies with a proven track record can indeed be very profitable. The stock market lends itself both to long-term investments and trading – short-term ownership of stocks whose price go up or down in days or weeks. The price of a stock going down does not sound like a great investment opportunity, but through “short selling” it can be quite rewarding for the knowledgeable investor.

Stock Brokers List

These brokers give access to the market through direct ownership of stocks and/or related derivatives such as different kinds of options or CFDs.
Filter Brokers
Found 73 Brokers
Leading forex and CFD broker since 2006, regulated in Ireland, Australia, Canada, Japan, Abu Dhabi, and South Africa. AvaTrade offers multiple trading platforms, including MT4/5, Web Trader, Mobile App, Vanilla options and Social Trading. +1250 Financial Instruments, Educational content and multilanguage customer support active 24/7. 20% Welcome bonus available on allowed countries.
Demo Account
Yes
Regulated By
CBoI, ASIC, FSB, ESMA
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
$.01
Crypto
No
RoboForex is a multi-asset online broker offering powerful trading aides.
Demo Account
Yes
Regulated By
IFSC
MT4 Integration
Yes
Min. Deposit
$10
Min. Trade
0.01 lots
Crypto
Yes
Forex.com boast a global reputation. Regulated in the UK, EU, US and Canada they offer a huge range of markets, not just forex, and offer very tight spreads and a cutting edge platform.
Demo Account
Yes
Regulated By
CySEC, IIROC, NFA, CFTC, FCA, FSA, and CIMA
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
$1
Crypto
No
Eightcap is a multi-regulated FX & CFD broker offering the MT4 & MT5 platforms. Award winning platform, zero commission, free education and low spreads.
Demo Account
Yes
Regulated By
ASIC, VFSC
MT4 Integration
Yes
Min. Deposit
£/€/$100
Min. Trade
0.01 lots
Crypto
No
XM.com Offer a range of Account types and a low minimum deposit to appeal to all levels of trader. With 1000+ markets and low spreads they offer a great service.
Demo Account
Yes
Regulated By
IFSC, DFSA, CySEC, ASIC
MT4 Integration
Yes
Min. Deposit
5 $/€/£
Min. Trade
0.01 Micro lots
Crypto
No
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Demo Account
Yes
Regulated By
FCA, CySEC
MT4 Integration
No
Min. Deposit
$200 ($50 in US, $10 in UK)
Min. Trade
$1
Crypto
Yes
Capital.com offer CFDs and Forex CFDs on a huge range of assets, with competitive spreads and zero commission on unique platforms, including the fully functional mobile app.
Demo Account
Yes
Regulated By
FCA, CySEC, ASIC, FSA
MT4 Integration
Yes
Min. Deposit
£/$/€20 (Varies by payment method)
Min. Trade
Varies by asset
Crypto
No
IG offer spread betting, CFD and Forex trading across a range of markets. They are FCA regulated, boast a great trading app and have a 40 year track record of excellence.
Demo Account
Yes
Regulated By
FCA, MAS
MT4 Integration
Yes
Min. Deposit
£250
Min. Trade
£1
Crypto
No
Multi-Award winning broker. Specialising in Forex but also offering stocks and tight spreads on CFDs and Spread betting across a huge range of markets.
Demo Account
Yes
Regulated By
CySec, DFSA, FCA, SCB, FSCA
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 Lots
Crypto
Yes
CMC Markets is headquartered in London and listed on the LSE (FCA Regulated). It offers competitive spreads on a global range of assets via its Next Generation platform.
Demo Account
Yes
Regulated By
FCA, MAS, ASIC, IIROC
MT4 Integration
Yes
Min. Deposit
£0
Min. Trade
0.01 Lots
Crypto
No
Finq.com offer a great all round service with trading on 2100+ assets and immediate bonus offers. Up to $4000 in Deposit Bonuses.
Demo Account
Yes
Regulated By
FSA
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
Yes
Trading in the Uphold environment offers a one-stop-shop for all your crypto requirements.
Demo Account
Yes
Regulated By
FCA, FinCEN
MT4 Integration
No
Min. Deposit
$0
Min. Trade
$1
Crypto
Yes
ZacksTrade: Built for the active trader. Stock & ETF trades from $3, 75¢ options contracts and 3.56% margin rate (lower on occasion)
Demo Account
No
Regulated By
SEC
MT4 Integration
No
Min. Deposit
$2500
Min. Trade
From $3
Crypto
No
RaceOption is a binary options and CFD platform offering trading contests and prize giveaways.
Demo Account
Yes
Regulated By
MT4 Integration
No
Min. Deposit
$250
Min. Trade
$1
Crypto
Yes
TMGM is a competitive forex and CFD broker with a wide range of instruments, features and tools provided at low-cost.
Demo Account
Yes
Regulated By
ASIC, FMA, VFSC
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
Yes
Anzo Capital is a competitive global forex and CFD broker with ECN and STP accounts, both offering MT4 access and a wide range of assets.
Demo Account
Yes
Regulated By
IFSC
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
No
Rockfort Markets is a New Zealand broker with a competitive range of assets, trading platforms and educational services.
Demo Account
Yes
Regulated By
FSP, FMA
MT4 Integration
Yes
Min. Deposit
$200
Min. Trade
0.01 lots
Crypto
Yes
Pocket Option is a global binary options broker with sleek proprietary trading platform and competitive range of assets.
Demo Account
Yes
Regulated By
IFMRRC
MT4 Integration
No
Min. Deposit
$50
Min. Trade
$1
Crypto
Yes
Exinity provides flexible low-cost trading in FX, commodities, indices and equities alongside unique education and support provided by teams located across the world. Now operating in the Middle East, through regulation from the Financial Services Regulatory Authority in Abu Dhabi and the Financial Services Commission of Mauritius, Exinity provides a range of services to traders and investors looking for new opportunities in the financial markets.
Demo Account
Yes
Regulated By
FSRA, FCA, FSC, CMA
MT4 Integration
Yes
Min. Deposit
Trader Pro: $10,000 Trader: $100 
World:$20
Min. Trade
0.01 lots
Crypto
No
Pacific Union is a multi-asset broker offering trading via the MT4 and MT5 platforms.
Demo Account
Yes
Regulated By
Cyprus Securities and Exchange Commission (CySEC) and Seychelles Financial Services Authority (SFSA)
MT4 Integration
Yes
Min. Deposit
$50
Min. Trade
0.01 lots
Crypto
Yes
AdroFX is a regulated, global broker offering forex, CFD and crypto trading with MT4 access and attractive welcome bonuses.
Demo Account
Yes
Regulated By
FSA, BSSLA
MT4 Integration
Yes
Min. Deposit
$25
Min. Trade
0.01 lot
Crypto
Yes
RoboMarkets is an award-winning broker offering flexible margin trading.
Demo Account
Yes
Regulated By
CySEC
MT4 Integration
Yes
Min. Deposit
$/£/€100
Min. Trade
0.01 lots
Crypto
No
Core Spreads offers CFD trading and spread betting across several asset classes on two top-tier platforms.
Demo Account
Yes
Regulated By
FCA
MT4 Integration
Yes
Min. Deposit
$0
Min. Trade
0.01 lots
Crypto
No
TP Global FX offers a long list of popular financial assets with spreads from 0.1 pips. With a focus on innovation and transparency, they are a growing brand.
Demo Account
Yes
Regulated By
SVG FSA, NFA, CAMA Nigeria
MT4 Integration
Yes
Min. Deposit
$200
Min. Trade
0.01 lots
Crypto
Yes
Global Prime is a multi-regulated trading broker offering 100+ markets.
Demo Account
Yes
Regulated By
ASIC, VFSC, FSA
MT4 Integration
Yes
Min. Deposit
AUD $200
Min. Trade
0.01 lots
Crypto
Yes
Trade Nation is a top FX and CFD broker regulated in multiple jurisdictions including the UK and Australia. The firm offers tight spreads and no minimum deposit.
Demo Account
Yes
Regulated By
FCA, ASIC, FSCA, SCB
MT4 Integration
Yes
Min. Deposit
$0
Min. Trade
0.1 lots
Crypto
No
Trade.com offers thousands of tradable assets on desktop and mobile platforms.
Demo Account
Yes
Regulated By
FCA, CySEC, FSCA
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
Yes
Quotex offers a proprietary web platform that offers digital options and copy trading.
Demo Account
Yes
Regulated By
IFMRRC
MT4 Integration
No
Min. Deposit
$10
Min. Trade
$1
Crypto
Yes
Just2Trade offer high tech trading on stocks and options with some of the lowest prices in the industry.
Demo Account
Yes
Regulated By
CySEC, NFA, FINRA, Bank of Russia
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01
Crypto
Yes
ActivTrades offers online trading on the MT4, MT5 and ActivTrader platforms. Over 93.60% of orders are executed at the requested price.
Demo Account
Yes
Regulated By
FCA, SCB
MT4 Integration
Yes
Min. Deposit
$500
Min. Trade
0.01 lots
Crypto
Yes
BlackBull Markets offers forex and CFD trading on the MT4 & MT5 platforms.
Demo Account
Yes
Regulated By
FMA, FSA
MT4 Integration
Yes
Min. Deposit
$200
Min. Trade
0.01 lots
Crypto
No
LQDFX offers online trading with multiple STP accounts and MT4 analysis tools.
Demo Account
Yes
Regulated By
MT4 Integration
Yes
Min. Deposit
$20
Min. Trade
0.01 lots
Crypto
Yes
LiteForex Europe is an FX and CFD broker offering sophisticated trading tools.
Demo Account
Yes
Regulated By
CySEC
MT4 Integration
Yes
Min. Deposit
$50
Min. Trade
0.01 lots
Crypto
No
Swissquote is an FCA-regulated FX & CFD broker offering 160+ trading products.
Demo Account
Yes
Regulated By
FCA, FINMA, DFSA, SFC
MT4 Integration
Yes
Min. Deposit
$1,000
Min. Trade
0.01 lots
Crypto
No
SimpleFX is a CFD broker offering its own SFX WebTrader platform & low fees.
Demo Account
Yes
Regulated By
MT4 Integration
Yes
Min. Deposit
$0
Min. Trade
0.01 lots
Crypto
Yes
EagleFX is a popular trading broker offering forex, stocks, cryptos & commodities.
Demo Account
Yes
Regulated By
MT4 Integration
Yes
Min. Deposit
$10
Min. Trade
0.01 lots
Crypto
Yes
Speculate on traditional and emerging financial markets via MT4, MT5 and cTrader. FXPrimus is multi-regulated and offers leverage up to 1:1000 alongside monthly promotions.
Demo Account
Yes
Regulated By
CYSEC, MIFID, ICF, FCA, BaFin, VFSC
MT4 Integration
Yes
Min. Deposit
$15
Min. Trade
0.01 lots
Crypto
Yes
FXChoice is an offshore retail broker offering MT4 and MT5 platform downloads plus online CFD trading.
Demo Account
Yes
Regulated By
FSC
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
Yes
EZ Invest is a CySEC-licensed broker offering trading on the financial markets.
Demo Account
Yes
Regulated By
CySEC
MT4 Integration
Yes
Min. Deposit
$500
Min. Trade
0.01 lots
Crypto
Yes
FXCC is a trustworthy trading broker regulated by the CySEC. The brokerage offers ECN trade executions, leverage up to 1:500 and $0 commissions.
Demo Account
Yes
Regulated By
CySEC
MT4 Integration
Yes
Min. Deposit
$0
Min. Trade
0.01 lots
Crypto
Yes
Fortrade is a multi-asset broker offering a simple live account with advanced tools.
Demo Account
Yes
Regulated By
FCA, ASIC, CySEC, NBRB, IIROC
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
Yes
FP Markets is a multi-asset broker offering a choice of trading platforms.
Demo Account
Yes
Regulated By
ASIC, CySEC, ESMA
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
Yes
IronFX offers online trading in forex, stocks, futures and commodities
Demo Account
Yes
Regulated By
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
No
Admiral Markets is leading Forex and CFD broker offering the MT4 & MT5 platforms
Demo Account
Yes
Regulated By
FCA, CySEC, ASIC, JSC
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
Yes
Spectre.ai is a blockchain-based binary options broker
Demo Account
Yes
Regulated By
St. Vincent and the Grenadines
MT4 Integration
No
Min. Deposit
$0
Min. Trade
$1
Crypto
Yes
Access global exchanges anytime, anywhere, and on any device. DEGIRO offer stock trading with low fees and a large range of markets. DEGIRO are not CFD brokers and do not offer CFDs
Demo Account
No
Regulated By
FCA, BaFin
MT4 Integration
No
Min. Deposit
0 $/€/£
Min. Trade
Varies by asset
Crypto
No
NordFX offer forex trading with specific accounts for each type of investor. Spreads start from 0.0 pips while minimum deposits start at $10.
Demo Account
Yes
Regulated By
VFSC
MT4 Integration
Yes
Min. Deposit
$10
Min. Trade
$1
Crypto
Yes
Trade on the financial markets with low cost, leveraged products at HYCM.
Demo Account
Yes
Regulated By
FCA, DFSA, CIMA, CySEC
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
Yes
Infinox is a UK-based broker offering MT4 trading with tight spreads.
Demo Account
Yes
Regulated By
FCA
MT4 Integration
Yes
Min. Deposit
£1
Min. Trade
0.01 lots
Crypto
No
Hantec Markets is a multi-regulated online FX broker offering MT4 and a tailored service providing flexibility to suit any trader.
Demo Account
Yes
Regulated By
FCA, ASIC, FSC, FMA, FSA, CGSE, VSFC, JSC
MT4 Integration
Yes
Min. Deposit
$10
Min. Trade
0.01 lots
Crypto
Yes
Dukascopy is a Swiss-based forex, CFD, and binary options broker
Demo Account
Yes
Regulated By
FINMA, FCMC, JFSA
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
0.01 lots
Crypto
Yes
NinjaTrader offer investors futures and forex trading. Use auto-trade algorithmic strategies and configure your own platform while trading with the lowest costs.
Demo Account
Yes
Regulated By
NFA, CFTC
MT4 Integration
No
Min. Deposit
$50
Min. Trade
Varies by asset
Crypto
Yes
GO Markets is an ASIC-regulated FX & CFD broker.
Demo Account
Yes
Regulated By
ASIC, CySEC, FSC of Mauritius
MT4 Integration
Yes
Min. Deposit
$200
Min. Trade
0.01 lots
Crypto
Yes
A regulated bank, Saxobank offer Equities and Forex trading on 40,000+ markets via the SaxoTrader Pro and SaxoTrader Go platforms
Demo Account
Yes
Regulated By
DFSA, MAS, FCA, SFC
MT4 Integration
No
Min. Deposit
£500
Min. Trade
Vary by asset
Crypto
No
Spreadex offer spread betting on financials with low fees. The company is a popular and award winning UK regulated broker.
Demo Account
No
Regulated By
FCA
MT4 Integration
No
Min. Deposit
£0
Min. Trade
£0.01
Crypto
Yes
ThinkMarkets is a multi-regulated forex and CFD broker
Demo Account
Yes
Regulated By
FCA, ASIC, FSCA, CySEC, JFSA, FSA Seychelles
MT4 Integration
Yes
Min. Deposit
$0
Min. Trade
0.01 lots
Crypto
Yes
Reliable and affordable trading since 2009. Join over 900,000 others trading on 400+ CFD products over assets like forex, gold, indices, cryptocurrency and shares from 0.0 spreads through TradingView, MT4 or MT5. Vantage is ASIC regulated and client funds are segregated. Open an account in under 5 minutes.
Demo Account
Yes
Regulated By
ASIC, FCA, CIMA
MT4 Integration
Yes
Min. Deposit
$200
Min. Trade
0.01 Lots
Crypto
Yes
Trading 212 Offer a truly mobile trading experience. With tight spreads and a huge range of markets, they offer a dynamic and detailed trading environment. Recent customer care issues have severely damaged the reputation of the brand.
Demo Account
Yes
Regulated By
FCA
MT4 Integration
No
Min. Deposit
€/£/$1
Min. Trade
0.01 Lots
Crypto
Yes
Pepperstone offers spread betting and CFD trading to both retail and professional traders. Clients can trade FX, indices, commodities and shares on MT4, MT5 and cTrader platforms.
Demo Account
Yes
Regulated By
FCA, ASIC, DFSA, CMA, BaFin
MT4 Integration
Yes
Min. Deposit
$500 recommended
Min. Trade
0.01 Lots
Crypto
Yes
FXTM is a leading forex and CFD broker. Offering a huge range of markets and 6 account types, they cater to all levels of trader.
Demo Account
Yes
Regulated By
CySec, ESMA, FCA and FSC of the Republic of Mauritius
MT4 Integration
Yes
Min. Deposit
From $50
Min. Trade
0.01 lots
Crypto
No
LegacyFX is a multi-asset broker offering an MT5 download & free signals.
Demo Account
Yes
Regulated By
CySEC, FCA, VFSC, NBRB
MT4 Integration
No
Min. Deposit
$500
Min. Trade
0.01 lots
Crypto
Yes
PrimeXBT is a Bitcoin-based platform offering highly leveraged trading in FX, indices, commodities, & cryptocurrencies.
Demo Account
No
Regulated By
MT4 Integration
No
Min. Deposit
0.001 BTC
Min. Trade
0.01 contract
Crypto
Yes
easyMarkets.com - Simply Honest. Trade CFDs on Forex, Commodities, Indices, Shares & Cryptos With a Top Rated Forex Broker
Demo Account
Yes
Regulated By
CySec, ASIC, BVI
MT4 Integration
Yes
Min. Deposit
€100
Min. Trade
Varies by asset
Crypto
Yes
Fusion Markets are delivering low cost forex and CFD trading via low spreads and trading costs. Their message is - Stop paying too much to trade
Demo Account
Yes
Regulated By
ASIC
MT4 Integration
Yes
Min. Deposit
$0
Min. Trade
0.01 Lots
Crypto
Yes
Fondex is an award-winning forex and CFD broker with industry low trading costs.
Demo Account
Yes
Regulated By
FSA, CySEC
MT4 Integration
No
Min. Deposit
$0
Min. Trade
0.01 lots
Crypto
No
Skilling are an exciting new brand, regulated in Europe and beyond, with a bespoke browser based platform, allowing seamless low cost trading across devices.
Demo Account
Yes
Regulated By
CySec, FSA
MT4 Integration
Yes
Min. Deposit
100 £/€/$ or 1000 NOK, SEK
Min. Trade
0.01 Lots or 1 Share
Crypto
Yes
XTB is one of the largest stock exchange-listed FX & CFD brokers in the world, offering access to over 2000 instruments on their trading platforms.
Demo Account
Yes
Regulated By
FCA, CySEC, IFSC, KNF, DFSA
MT4 Integration
No
Min. Deposit
$0
Min. Trade
0.01 Lots
Crypto
No
Deposit and trade with a Bitcoin funded account. BinaryCent offers binary options, FX and CFD trading. 1:100 leverage is also available.
Demo Account
Yes
Regulated By
VFSC
MT4 Integration
No
Min. Deposit
$250
Min. Trade
$.10
Crypto
Yes
Videforex accepts deposits in a range of cryptos and fiat currencies. Payouts reach 95% per trade.
Demo Account
Yes
Regulated By
MT4 Integration
No
Min. Deposit
$250
Min. Trade
$1
Crypto
Yes
IB Boast a huge market share of global trading. With a minimum deposit of $10,000 however, they remain an option for larger traders only.
Demo Account
Yes
Regulated By
SEC, FCA, IIROC, SFC
MT4 Integration
No
Min. Deposit
$10000
Min. Trade
$100
Crypto
Yes
InstaForex provide Forex, CFDs, Stock and Cryptocurrency trading. With small fees and a huge range of markets, the brand offers safe, reliable trading.
Demo Account
Yes
Regulated By
CySec
MT4 Integration
Yes
Min. Deposit
€100 to €50000 (Account choice dependent)
Min. Trade
0.01 Lots
Crypto
No
Zulutrade provide multiple automation and copy trading options across forex, indices, stocks, cryptocurrency and commodities markets
Demo Account
Yes
Regulated By
HCMC
MT4 Integration
Yes
Min. Deposit
Broker choice dependent but balance on ZuluTrade should exceed $100
Min. Trade
$1
Crypto
Yes
Established spread betting, forex and CFD broker with over 30 years in the business. Regulated around the globe.
Demo Account
Yes
Regulated By
ASIC, FCA, MAS
MT4 Integration
Yes
Min. Deposit
£/$100 (varies by location)
Min. Trade
0.01 Lots
Crypto
No

Articles

How to Get Access to the Stock Market

With hundreds of millions of traders worldwide participating in stock exchanges around the world, stock brokerages represent the access point to the stock market. So the first step in starting the journey of trading stocks is by opening an account with a stock broker.

There are two types of stock brokers operating in the market today. We have:

a)    Full-service brokers who provide an array of value-added services in addition to the conventional ‘buy and sell for me’ services rendered by brokers. They provide investment advice, portfolio management and sometimes, privileged news delivery services regarding virgin investment opportunities and market moving information. Their services are quite pricey, and for this reason, only those with a sizeable amount of cash can afford their services. These brokers also have a minimum benchmark for account opening balance, usually starting with thousands of dollars.

b)    Discount brokerages offer stripped-down brokerage services. The unique selling proposition of discount brokerages as pioneered by Charles Schwab and others, is the very low brokerage fees that range from $4.95 to $9.95 per trade, irrespective of the number of shares being traded. However, this puts the onus of the extra services such as investment research solely in the hands of the trader. Discount brokerages allow traders open cash accounts for as low as $500 and $2,000 for cash/margin (leveraged) accounts. There are many discount brokerages and a search for them on the internet search engines will yield a plethora of names.

Requirements for Stock Trading

Having capital to trade is only one of the requirements. Traders must present documents to prove their identity and also to show where they live. These requirements became necessary after the September 11, 2001 attacks showed a lot of terrorist money being moved by third party/proxy accounts. So the fight against money laundering and financing if terrorism has been moved a notch by requiring all traders to be identified as the bonafide owners of the accounts that they trade with, and that the money they use for trading does not come from illegal sources. To this end, traders must present a drivers’ license/international passport/national ID card as proof of identity, AND a bank statement/utility bill as proof of residence. Some countries have also gone a step further to require that brokers operating citizens-only brokerages collect information concerning taxation status and residency status.

Furthermore, a trader will need to equip himself with the tools of the trade. A computer/smartphone and access to the internet are must-haves for every stock trader. Traders must also have an acceptable means of depositing funds and withdrawing funds from the stock trading account. A credit/debit card, domiciliary account for wire transfers or an e-wallet account such as Skrill are acceptable methods of transaction.

How Stocks are Traded

A stock can be traded by a long position, aiming to profit when the stock appreciates, and to a restricted extent, traded by short-selling the stock with the aim of profiting from a drop in price. Various methods of analysis are used to predict the movement of the asset.

In a nutshell, this is what a beginner who wants to trade stocks needs to know about the stock market. The actual business of buying and selling stocks is outside the scope of this article, but the information is accessible on other sections of this site.

Fundamental Stock Analysis

Fundamental analysis in stock trading concerns the intrinsic value of a stock in relation to its present and future valuation by the market. Questions a trader must ponder are:

  1. What is the present market value of a stock in relation to a rational and objective valuation of the company’s performance and prospects?
  2. Is the present price of a stock representative of its actual value? In other words, is a stock presently undervalued, truly valued or overvalued on the basis of its present market price?
  3. Will a stock’s price correct itself to match its intrinsic value?

So the whole idea of using fundamental analysis is to determine the relationship of the present price of a stock and its intrinsic value, determine if the price matches that intrinsic value, and determine when the price will correct itself to match the intrinsic value depending on the circumstances and news items surrounding the stock in question.

The following data are used by traders when deciding on whether it is worthwhile to invest in a stock or not.

Earnings Reports

The earnings season is a period which the markets take very seriously and is one that traders and investors look forward to. This is when the earnings reports are released. The earnings report not only tells investors how much money a company has made or lost, but also gives traders the following information:

  • Earnings per share
  • Price earning ratio (P/E ratio)
  • Net income
  • Net sales

The price-earnings ratio is especially important in measuring the valuation of a company. The lower the P/E ratio of a company, potentially the better the valuation of that company. A very practical way of looking at a company’s valuation using the P/E ratio is to compare it with that of other companies listed in the same sector.

Earnings reports are released every three months, i.e. every quarter. They enable investors and shareholders to gauge the financial status of the companies in which they have investments in, and also in companies in which they may have an interest in investing in. The numbers seen in the earnings are not considered on their own, but are rather weighed against past numbers to see if there is improvement in financial performance or a decline. For instance, a company may release a report stipulating that they recorded a loss, but if the loss was much less than in previous quarters (as was with Blackberry’s Q2 2012 report), investors will interpret this as a sign of changing fortunes and we will see demand on the stock. On the other hand, if profits declared miss estimates (as was seen in Google’s and Apple’s Q3 2012 reports), demand will drop as investors offload the stocks of these companies. Google’s stock fell 10% on the day its disappointing Q3 report was released.

So investors can on the basis of the earnings reports, decide whether to pull out from a company, or put money into a company or even increase the existing stake that they have in the company, and these factors will affect the share price of the company.

Introduction of a New Product

Certain companies are known by their products. Talk of Apple and immediately people think about the iPhone, iPad and iPods. No one really associates Apple with their TVs or with any of their other products. The iPhone and iPad are the flagship products of Apple as a result of the revolution these products created in the world. They changed the way we make calls and use the internet. As such, anytime an upgraded iPhone or iPad comes up in the market, we see sales going through the roof and investors scrambling for the shares of Apple as a result of the perceived valuation of the company in the near future. The Apple story is a clear example of how the introduction of a new product that creates a human revolution can change the financial outlook of that company, and is so doing, determines its valuation as perceived by investors.

Mergers and Acquisition

Mergers and acquisitions have the same valuation effect on a company’s stock. If a struggling company is acquired by a much more powerful company, there will be an improved valuation on the shares of the acquired company. On the other hand, a merger between a strong company and an extraordinarily weak company can have a negative valuation on the shares of the former.

Government Policy

A government policy can radically change the perception of stocks in a particular sector, and increase the valuation and intrinsic values of the affected companies. When the US Supreme Court upheld most of the provisions of the Affordable Care Act of 2012 (Obamacare), the stocks of Medicaid HMOs such as Molina, Amerigroup and Centene soared while those of health insurers dropped because of the income expectations that the law would have on both sets of companies. Health insurers would incur more costs by covering people with certain preexisting conditions, as well as compete with state-based insurance exchanges for clients, which could negatively impact their finances. On the other hand, Medicaid HMOs would be able to make more money from the increased number of clients in the system. This is just one example of how a government policy could change the valuation of a company.

It will take some practice to fully understand how to use these parameters in fundamental analysis. The trader can practice this by looking at historical instances and applying them to present-day situations on a stock trading demo account in order to fully master the technique of trading stocks with fundamental analysis.

Assessing Stocks for Investment

Stock investment is serious business. It involves putting in money into an asset with the expectation that returns on that investment will be achieved. Generally speaking, the positions that investors will hold in stocks are “long positions”, which means that traders will be looking for price appreciation in order to make money from those positions.

So in assessing stocks for investment, it is necessary to look at the factors that will promote price appreciation.

Prerequisites for Stock Assessment

The first step in assessing stocks for investment is to determine the investment goals. What forms investment goals?

  • Expected profit/returns on investment
  • Duration of investment (especially when trading with leveraged instruments)
  • Risk appetite of the trader
  • Risk profile for the stock

The expected return on a stock investment provides a benchmark that traders can use to determine what and where they should be putting their money. For instance, if a trader hopes to make 40% returns on his investment after one year, and there are sectors of the stock market that deliver returns of an average of 50% as opposed to other sectors that deliver only 5%, the trader is better off putting his money on stocks in the higher return sector.

This takes us to the next point, which is the trader’s risk appetite. Stocks that deliver higher returns are by nature, more risky than those which deliver low returns. Stocks move upwards and downwards depending on the market situation, and a stock’s upward movement also correlates with its downward movement. A stock that has movements of up to 20% in a single trading session, can either deliver either a 20% profit, or a 20% loss. Another stock which may only move 3%, means that it can deliver a profit or loss of 3%. A trader who is able to take on large movements on his account without losing sleep, should be able to put money in the higher yielding stock.  Some traders may not be aware of their risk appetite, and may need professional guidance on this. For instance, traders closer to retirement are not supposed to engage in risky stock investments.

Before investing in a stock, the trader should look out for the risk profile of the stock to be invested in. Stocks listed in the micro-cap sector are generally more volatile than blue chip stocks, and while micro-cap stocks can deliver good profits, their volatility means that it is easier to lose money with them than with the blue-chips.

In a nutshell, here are the factors that are generally used in assessing which stock to invest in at a particular time.

Finally, traders should be very clear about how long they want to be in a stock. Short term traders are in it for the money, long term traders are in it for the inherent value of the stock. The trading mindset and methodology of these two classes of traders is very different.

Assessing Stocks: What to Look Out For

Now that we know what investors should consider when deciding on how to carry out stock investment, what are the core factors that affect the price of stocks? These parameters listed below are the core factors to consider because they directly impact share prices.

Earnings Reports: The earnings report constitutes the major factor that traders consider when taking position in a stock, especially when those traders are traders with a short term view on the market. Every company is in business for one thing only: to make money. If a company is not making money, its stock price will suffer as a result of markedly reduced demand. The earnings report is the market indicator that tells traders all about the company’s financials. Financial information is not just about profit or loss, but comparative analysis between present performance and past performance. For example, a company may be in a loss position, but if the loss position shows a reduction in losses when compared to previous reports, the stock price of that company may actually rise.

A good example of this is Research in Motion, whose 3rd Quarter report for 2012 showed that its loss position was actually better than what the markets thought it would be. So even though the company’s reports have been negative for some time now, the much improved Q3 figure gave markets some hope that there will be some improvement and RIM’s stock was up by 18% at pre-open. In addition, it is possible for a company to make profit and its share price go down. This usually occurs if the profits missed market expectations, or if revenues dropped. Two of the most important pieces of information that traders look for are the earnings per share (EPS) and Price Earnings Ratio (P/E ratio).

Company News: The death of a major figure, the appointment of a game changer or a healthcare company’s discovery of a vaccine or cure for a previously incurable disease, are all examples of news that can prove to be a major mover of a company’s stock price. There are news services that consistently dish out market information on a daily basis.

Acquisitions/Mergers: Mergers and acquisitions are always market movers, because they change market sentiment and expectations for stocks. The expectation is that a merger or an acquisition will change make an outlook more positive for all concerned, and it is always necessary for traders to look at the fundamentals of the participating companies in order to make informed decisions.

Strength of Market Peers

Market peers refers to other stocks that are listed along with a particular stock in a sector. In a typical exchange, stocks are divided into sectors. There is a phenomenon known as “guilt by association”. The collapse of Bear Stearns and Lehman Brothers dragged down almost all financial stocks with them in 2008. When banks like Wells Fargo released stellar Q1 results for 2012, nearly all banking stocks in the US markets had a great bullish run. So a trader can sometimes get into a stock if the sector that stock is listed is doing well. This is further buttressed by the fact that some sectors are subject to political decisions that affect every stock listed in that sector.

Guide to Short Selling

Short selling in the financial markets means borrowing an asset such as a stock from a broker to sell them at a high price, and then buying them back when prices have fallen so as to return the asset to the broker, and benefiting from the price differentials.

Short selling is used when there is an expectation that the price of an asset will fall within a space of time. Traders generally carry out short selling to make money from falling prices or they use it as a hedging strategy to protect themselves from fall in prices on assets in which they have long positions.

Short Selling as a Hedging Strategy

For instance, a trader may be long on an imaginary stock we shall call XYS, and he may then decide to short sell the stock options on XYS. The strategy is played in such a way that if XYS has a bullish run if the trader is long on it, and the short sale option is out of the money as a result, then the cost of the short sale loss will be far less than the outcome of the long trade on the stock. But if the price of XYS drops and puts the long position in a losing position, then the gains to be made from the short sale will far outstrip the loss on the long position on XYS. In this scenario, short selling XYS will act as a hedge trade.

Short Selling in a Falling Market

Traders can decide to employ short selling as a strategy to gain from falling prices, especially when the fall in prices is a systemic problem and not restricted to a sector or a single stock. This is why in the weeks following the collapse of Bear Stearns and preceding the collapse of Lehman Brothers in 2008 (the events that triggered the global financial crisis), traders massively engaged in short selling of stocks, especially those of the financial sector because they were all in a predicable free fall.

However, there is a very thin line to tread when trading a systemic fall in prices, because it gives room for spreading of negative rumours and when everyone is selling, it tilts the equilibrium of the markets. Regulators will always step in when this occurs, and we have seen bans on naked short selling at various times when there is systemic crisis. So if a trader wants to short sell as a profit strategy, then the best bet is to identify individual or sectorial assets based on technical and fundamental analysis, and short sell those assets with a bearish outlook.

Conditions for Profiting from Shorting

Short selling is an extremely risky strategy. If you are familiar with the collapse of MF Global, a financial services company that short sold the Euro in expectation of a fall in the value of the single currency in a massive bet that went horribly wrong, then you can imagine how risky the strategy is. A trader can lose a lot of money in an instant.

For a trader to be able to profit from short selling, the following parameters must be met:

1)    The trader must be able to locate an asset to use for short selling. To do this, the trader must have a trading account that provides enough margin for short selling, and also permits short selling.

2)    There must be enough liquidity in the asset to enable the short seller get buyers of the asset at the market price.

3)    The price of the asset in question must experience a price drop to put the trade in a profit.

4)    The trader has to be able to buy them back at a lower price.

5)    The asset in question must not be one restricted from short selling by the regulatory authorities.

Shorting Advantages

Short selling is a very good way to trade a bearish expectation for an asset. There are many emerging market exchanges that only permit stock purchases, and traders can only make money from bullish runs. Trading in these markets can be frustrating because opportunities to make money are restricted. But with short selling, a trader’s opportunities to make money even from falling assets are limitless.

A good example of a profitable short sale was that performed by George Soros’s Quantum Hedge fund which made more than $1billion in profit by short selling the British Pound in September 1992. Another trader who made money shorting a market is doctor-turned-investor Michael Burry, who made more than $600 million from short selling the credit default swap instruments on the US subprime housing market. Economists like Nouriel “Dr Doom” Roubini have regularly predicted periods of market crashes (he predicted the housing market bubble in 2005, long before prices began to tank), and such analyses easily form the basis for making huge profits from falling markets.

Short selling is also very useful for hedging and protecting profits. As was illustrated earlier in this article, short selling is a tool that allows traders to make up any losses incurred on the asset from unprofitable long positions. Many hedge funds who were long on stocks and stock markets used shorts to cover these positions and were able to use it to come out relatively unscathed when the cards came crashing in 2008.

How A Trader Can Make Money from Short Selling

A good target for a short sale would be an asset which is heavily overbought and whose fundamentals are not in tandem with its high prices. A good example of this was seen in an emerging market in Africa, where the breweries subsector was experiencing a massive price boom. There were questions over the state of health of some of the breweries whose stock prices were enjoying this sectorial boom, and a concerned investor decided to visit one of such breweries. He met overgrown weeds, a non-functional plant, a few workers and dilapidated structures. With this information, he quietly exited his holdings and within a short time, the information came out and the stock tanked. Such fundamental analysis is what is used to make informed decisions on what asset to short sell.

There are also technical indicators to consider. Is the asset forming a top or a bottom? There are several ways of identifying tops, bottoms, continuations and reversals on the charts. These can be used as a basis for short sale. A short seller would be looking to sell a market top or a bearish reversal pattern.

Issues

The market bias of traders is partly influenced by market news, some of which are facts and some of which are rumours. Nothing causes market panic more than negative rumours. Part of what fuelled the systemic collapse of global stock markets in 2008 was fake market rumours following the collapse of Lehman Brothers. Many traders would enter short selling positions in certain assets, then float negative rumours to force the asset price to tank so as to profit from these moves. From there on, it was a season of short selling which served to collapse the market further. You can get an idea of how this works from the film Casino Royale, where the villain of the movie tried a terrorist attack on a new-design aircraft hoping to profit from the collapse of the airline’s shares (which never happened thanks to 007).

This and other unethical practices led to a ban on naked short selling by many regulatory bodies across the world. Today, several degrees of restrictions on short selling are still in place. So if you want to practice short selling, you need to be conversant with the rules in your jurisdiction so as not to run foul of the law.

Day Trading Stocks

Day trading is a high-risk – and potentially high-reward – practice of buying and selling stocks over limited periods of time, such as during the same day, to take advantage of short-term price fluctuations. While risk will always be part of the day trading equation, the most successful day traders have the discipline to craft a plan and stick to it. By following a few simple steps, you can significantly increase your chances of turning a profit on your day trading activities.

Profits on day trading can often be significant – but expect most of your trades to yield smaller gains. That means you do not want a pay-per-trade system eating into your profits. Establish an account with an online trader that offers unlimited trading and does not charge per transaction. You may make dozens of trades over the course of a day, and per-trade fees can add up quickly.No matter which exchange you trade on, there are too many companies for you to track knowledgeably. As a day trader, you should look to become an expert in one thing – whether it is energy providers, small cap companies, or companies trading below book value. When you narrow your focus you are much more able to spot opportunities, and you will spend much less time making uninformed and unprofitable trades.

Learn the trading habits of the stocks you choose to follow, and look for any large trades or momentum. An initial spike in trading volume often leads to additional spikes as other investors jump on the bandwagon. If you can spot spikes early, you can get in on the ground floor as the stock increases in price. Some day traders trade on momentum, such as positive press coverage, rosy economic forecasts, or optimism around a particular industry. The best day traders will spend hours before markets open pouring over news and looking for companies that have or may gain momentum that could lead to stock price increases.

You will lose money sometimes. If you are uncomfortable with that notion – or if you do not have the money to risk – you should avoid day trading and focus your investment efforts on opportunities with less volatility. Too many day traders make losses much worse than they need to be because they will not accept that they have lost money on a trade. For example, you may purchase 100 shares of an energy company because you believe it will receive a favourable bump from a report on rising home heating oil prices. Instead of the bump, the stock loses half a point. Clearly your assumption was wrong, and now is the time to sell and minimise the damage. But many day traders will continue to stubbornly hold the stock, and will compound their losses.

A little bit of greed is good in day trading, but too much greed will wipe out your capital quickly. No stock increases in value forever, and you have to resist the temptation to retain a high-performing stock for too long. Once a trade has made you an appropriate profit, based on your expectations and the rules you have established, have the discipline to sell the stock before it begins to slide. Every now and then you may miss out on an opportunity to realise additional profits – but more often than not, you will save yourself from a painful loss

Further Reading